Why the Next Hollywood Crash is Unavoidable

This entry was posted on May 12, 2017 by Order Office Furniture.

Most people, even people who don't follow movies that closely, have noticed some kind of shift in the film industry lately. But most people can't describe what it is. Some will say there is an over abundance of blockbusters, but such films have been making Hollywood large chunks of money over the last few decades. The problem is actually a bit more subtle to the casual movie goer, but pretty staggering to those involved in the film industry.

Here's the best way to summarise what is really going on; have you ever heard of the widening gap in income equality in America? The value of the dollar is going down due to inflation, job security is down, the price of houses, the cost of goods and services are going up and wages are staying pretty much stagnant. But somehow, everybody at the top still seems to be making money. Actually, an unprecedented amount of money. In other words, more money is being spent and more money is being earned and almost all of it is going to the top. Now picture the same situation but replace the CEOs of huge corporations with superhero movies.

Back in 2013, Steven Spielberg commented on the state of the film industry in America. He said that an 'implosion' of the system was imminent, predicting that in the next few years up to a half dozen huge $250 million action movies would completely flop at the box office, thus turning the film industry on its head, as that is where it's getting most of its money.

Now you might be asking; that's where Hollywood gets most of its money? Okay, so superhero films usually make billions of dollars in profit, but aren't there hundreds of wide release movies every year? Surely they make up a large piece of the pie? Well, as of recently, like the last couple of years, not really. And the trend has just gotten a lot worse. Here's why:

Money Matters

The benchmark box office gross for a big budget movie is $300 million domestically. Which, when we're talking about the big franchise plots like Marvel and Transformers usually translates to about $1 billion worldwide. The average budget for a blockbuster is generally between the $150-$230 million, a figure which typically doubles when we account for marketing and other expenses. Which means we are looking at two to four half billion movies each year.

The general rule of thumb at the box office states that the production companies have to make at least 2x their total budget to make any kind of meaningful profit. As a recent example, Batman vs Superman cost around $450 total including making and marketing, and the worldwide gross didn't quite hit the $900 million mark, which means they barely made their money back and the rest of the series is going to be hard to get off the ground.

Miracles do still happen

A good box office year wants to see one, two or maybe even three movies hit the $350 million domestic target. But this is usually a pretty rear thing to see happen. For example, it was considered a small miracle when in 2014, Guardians of the Galaxy hit the mark.

Then we have the smaller, but still, pretty big movies, like The Boss, Ride Along and Ant-Man. These films have budgets anywhere between $50 to a little over $100. Regardless of the lower cost, the studios will still have to make around a quarter of a million dollars each worldwide to be successful. Every year we typically see about 15 to 20 of these movies at the box office, which for Hollywood indicates a healthy and lucrative year. Then at the bottom, we have the tiny indie films and an inevitable couple of middle ground movies that flop, and end up below the $100 million domestic.

But this trend is quickly becoming less of the norm

Why? Because most of Hollywood's criteria for choosing which films they finance is pretty arbitrary. Think of all the recent movies Hollywood threw money at; i.e. Horrible Bosses 2, Boys on the Hood, I Heard You Paint Houses, Ben Hur etc. expecting them to do well for no particular reason. While at the same time we hear that Martin Scorcese can just barely secure the money for his next gangster epic, even after directing numerous critical and commercial successes. Yet a Tetris movie was given an $80 million production budget right out of the gate.

This is also why the last few movies by Steven Spielberg, the inventor of the blockbuster movie, had trouble financing. Spielberg was, in fact, forced to sell Lincoln to HBO to make a profit. But yes, sometimes the cash-grabbing movies end up grabbing the cash they need, think Angry Birds and The Lego Movie, but Hollywood executives seem to be really bad at determining which cash-grabs are safe bets and which risks might actually work out.

Of course, a big part of this is that audiences are fickle and notoriously unpredictable. There are only so many constants Hollywood can use to predict if a movie will do well or not. But another They don't understand why people liked seeing Johnny Depp do silly, fun things as a pirate, but not seeing him do silly, fun things as an Indian.

We've been here before

At this point in time, Spielberg's prophecy of a movie industry implosion seems more likely than ever. And the prediction is in fact not without precedent. At the end of the 1960's, baby boomers came of age and being the first generation of American's who in the majority had a college education, their tastes were different to the fans of old Hollywood. They preferred films of the French New Wave, Japan and Spaghetti Westerns. Films that eschewed the old principles of classical Hollywood. And it could be that we are standing at just such a moment again. Clear is that something is going to have to give. Either ticket prices will get so high that people will stop going to the theatre, or flop losses will be too devastating for the studios to cover. One way or another, Hollywood will have no choice but to completely restructure the way they make movies